Best Practice

Understanding a short-term loan customer

Our members frequently consult their customers to find out about their experiences, good and bad, as a way of improving customer service and to help us maintain high standards in the industry.

In the largest survey of its kind with short-term loan customers: over ninety per cent of people surveyed said they were satisfied with their overall experience and the same number felt that high-cost, short-term credit companies provided a very useful service for people such as themselves.

Short-term loan customers are exceptionally astute borrowers who are capable of comparing rates and terms across different products and lenders. When we ask customers why they choose short-term loans they often cite the fairness of the deal, clear explanation of charges and fees, and being treated with dignity and respect.

There isn’t a typical short-term loan customer; our customers come from variety of different backgrounds, are either in permanent employment or have access to a regular income. They all have a bank account.

Consumer Lending Guide

The short-term lending industry has changed radically since 2014 with the Financial Conduct Authority’s rules creating a new lending landscape and offering borrowers many and varied protections. These include a cap on the total amount a borrower will ever repay, a limit on the number of times a loan can be extended (rollover) and a limit on the number of times a lender can attempt to collect repayments from a borrower’s bank account. This short video sets out these protections so that anyone, including borrowers, industry stakeholders, policy makers and politicians, know what to expect from responsible, regulated short-term lenders.

Industry regulation and standards

Short-term lenders operate to strict rules that are enforced by the Financial Conduct Authority. The FCA took over regulation of consumer credit on 1st April 2014.

On 2nd January 2015, the FCA introduced a cap on the amount short-term lenders can charge. Details are available here.

All lenders must be authorised by the FCA. The status of lenders (including short term lenders) can be checked on the FCA register.

Paving the way for the FCA

Prior to April 2014, regulation of the consumer credit industry was the responsibility of the Office of Fair Trading.

In addition to the statutory regulation, the CFA operated an enhanced Code of Practice to give consumers greater rights and protection.

The CFA’s Code encompassed and exceeded the Good Practice Customer Charter, which is the set of minimum standards agreed by the Government (Department of Business, Skills and Innovation), former regulator (OFT) and three other trade associations representing short-term lenders. The Charter came into force in November 2012.

Advertising and Marketing

High cost short term credit providers must abide by the same laws and regulations as all other consumer credit providers. However, despite this and a lack of robust evidence, the advertising and marketing of short-term loans has been of the cause of concern in some quarters.

For this reason, in November 2014, CFA members agreed to abide by some additional voluntary guidelines to reinforce their commitment to marketing their products responsibly. These commitments focus on areas of potential concern relating specifically to HCSTC products: advertising to children, targeting financially vulnerable consumers, trivialising debt and incentivising credit.

Alongside this, BCAP conducted a year-long review of the advertising of payday loans on TV. As a result, more than half a year after the CFA introduced its guidelines, BCAP published additional guidance for the whole industry in June 2015. BCAP consulted recently on the issue of scheduling of advertising for short-term loans.